An introduction to doing payroll
When you do your own payroll you need to commit to carrying out your responsibilities on time, every time. Why? Because you have responsibilities to your employees and to HMRC. You must also have payroll software.
When it comes to your employees payday, you need to use your software to work out how much they will get paid. Thereafter, you need to work out their tax and National Insurance deductions and record these on their payslip. When you’ve done all of that, you need to send a Full Payment Submission report to HMRC. You will then need to make the payments due to HMRC.
There are fixed dates for meeting these obligations. When you do your own payroll, you need to respect these dates because failing to do so could lead to penalties and a disgruntled workforce.
Paying your employees
When you work out your employees pay, you need to take into account their salary or wage as well as any Statutory Pay, Expenses and Benefits and tips and other pay they’ve received.
There are very specific rules for Statutory Pay, that include things like Statutory Sick Pay (SSP) and Maternity, Paternity, Adoption or Shared Parental Pay. It’s important that you stay up to date with your obligations. The same is true for expenses and benefits and other payments like bonuses, commission and holiday pay.
The main deductions you’ll be expected to deal with are tax and National Insurance. However, if you’re doing your own payroll, you should also be conversant with how to deal with Student Loan Repayments, pension contributions and Payroll Giving donations and child maintenance payments.
Every employer is obliged to give employees a payslip either on or before their payday. Many of the payroll software packages include payslip production, but if yours doesn’t there are other software packages that will help. Payslips need to show gross wages, deductions and net wages. You can choose to print your payslips or send them by email to your employees.
Reports you need to send to HMRC
Full Payment Submission (FPS) Report
You need to send a Full Payment Submission (FPS) Report to HMRC when, or before you pay your employees. You can produce this report within your software package. This report tells HMRC how much you’ve paid them and how much you have deducted. You can send your FPS ahead of time if you need to, but you need to include your PAYE reference and Accounts Office reference in the report no matter when you send it. If you make a mistake, you need to correct the errors. This report allows HMRC to calculate what you’re due to pay them and also if you are due a refund.
Employment Payment Summary (EPS)
When you send your FPS report to HMRC, you need to include an Employment Payment Summary (EPS) to: reclaim statutory maternity, paternity, adoption or shared parental payments; claim the Employment Allowance, ask for a National Insurance contributions holiday, reclaim Construction Industry Scheme (CIS) deductions or pay the Apprenticeship Levy.
You can also send an EPS instead of an FPS if, for some reason, you’ve not paid your employees.
Making payments to HMRC
You need to pay the full amount of tax and National Insurance plus any other deductions you’ve made to HMRC every month unless you have a reduction from a previous EPS. You can see what you owe via your online account. These payments need to be made on time. If your payments are late, you’ll get a letter or an online notice from HMRC and it’s worth remembering that late payments attract interest and could lead to a penalty.
Managing employee changes
You are required to give additional information on your FPS if you have a starter, a leaver or if you start paying someone a workplace pension. You also need to put more information in the submission if it’s the end of the year or if someone changes address. There are various other situations that need to be reported, such as when an employee becomes a director, reaches state pension age, dies or takes a leave of absence.
Changing paydays might be as simple as moving the date that you pay your workforce or it may involve changing how often they get paid. If you want to move your payday all you need to do is treat your first new payment as an extra payment. If you are planning to pay your workforce less often, you need to advise HMRC, otherwise you risk receiving a non-filing notice. Making changes is relatively simple and your software will help. However, if you are using HMRC’s basic PAYE tool, you will be restricted on how many changes you can make.